The implementation of "supply-side" economic theory implies that tax cuts for company owners are going to offer additional funds and financial breathing room to allow business owners to reinvest their stored tax dollars back into their companies by buying new equipment, hiring new employees or expanding operations.
However, the change with all the 20 percent tax deduction for most pass-through companies does have constraints. Specifically, individuals who own service-based businesses like law and accounting firms, financial services or physician's offices may only claim the deduction if their annual income is under $315,000 filing joint returns and below $157,500 filing single returns.
Owners of pass-through business entities today may be eligible to pay an amount up to 20 percent of the net business income. Therefore, pass-through owners are effectively taxed on 80 percent of their business income. For example a company owner earning $200,000 will only be taxed on $160,000. This would be in addition.
This is a personal deduction that owners can choose in their returns whether or not they itemize personal deductions.
Additional tax incentives and small business tax breaks such as "Price Segregation,""Work Opportunity Tax Credits" (WOTC),"Startup Tax Credits,""Research and Development Tax Credits," and "Property Tax Mitigation" continue to be viable tools for decreasing small business taxes, particularly for "pass-through" company owners.
One of the bill's primary provisions is that the lowering of C Corporation tax rates from 35% to 21% with the aim of bringing big corporations to set up shop in the USA. Some consider this will be the greatest consequence of this new legislation.
There Are a Number of Other changes involving such items as: Bonus Depreciation, Automobile Depreciation Limits, Section 179 Expenses, Limits on Deducting Business Interest, Limits on Deducting Net Operating Losses, Elimination of certain other Deductions and Credits. For more complete and detailed information, you are strongly advised to consult with your accredited Tax Planner. The changes are complex. However, FactCheck.org provides a useful summary of the legislation as it impacts people and companies.
Another main part of the new bill deals with a switch to the tax arrangement for what are known as "pass-through" businesses. Pass-through businesses account for roughly 95 percent of U.S businesses. Sole proprietorships, partnerships and S corporations are examples of pass-through companies.
Typical CPA Firms and Accountants will be quite busy deciphering and apply the new tax legislation, but for the most part they will still need our specialized tax consulting services to be totally effective in lessening the bottom line in taxation duties for small business owners. Click here to estimate your additional tax savings using our services.